The Hidden Cost of Discounted Gift Cards

Many businesses are drawn to discounted gift card programs because the math appears simple: buy a $50 card for $47.50 and pocket the 5% savings. But behind that discount sits one of the biggest hidden costs in the gift card industry, breakage, the amount of money customers never spend. And in the traditional commission model, the gift card provider keeps 100% of those unspent funds.

Because breakage is rarely disclosed, businesses struggle to see the true economics at play. A 5% discount looks attractive, but if 20–50% of card value routinely goes unused, the provider earns far more from breakage than from the small commission you saved upfront. In other words, the discount is not generosity, it’s the provider pre spending your future unredeemed balances.

This creates a structural incentive problem: providers profit when customers don’t use their cards. As a result, many traditional programs quietly adopt a poor user experience, minimal reminders, hidden balances, confusing redemption processes, or rigid merchant restrictions. These frictions increase breakage, and breakage increases provider profit.

LocalCard turns this model on its head. We don’t take breakage at all. There’s no discounting, no hidden margins, and no incentive to make redemption difficult. Instead, 100% of unspent funds are refunded back to your business. This alignment lets us focus solely on delivering exceptional UX: reminders, real time balances, simple digital wallet support, and frictionless redemption.

For businesses, the value is immediate, full transparency, real time reporting, complete control over card rules, and a stronger ROI because no money is lost to breakage.

In short, if your gift card provider is offering a big upfront discount, it’s a sign that a lot of your customers’ money is being lost through breakage.

LocalCard eliminates that waste entirely.